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Bear of the Day: Logitech (LOGI)

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There were over 155 million
smartphones sold worldwide each quarter in 2012. Total 2011 sales were a staggering 491.4
million units. About 40-50% of all phones
being sold today are smartphones with touch screens and the trend is growing.

Tablets are also booming and changing the computer landscape. Apple (AAPL - Analyst Report)
alone is expected to sell 55 million
iPad minis, 33 million iPads and over 190 million iPhones in 2013.
Samsung, Google and others will more than double those sales
figures.

No matter what product you favor,
they all have one thing in common; touch screens.

For companies like Logitech that
sell mice, keyboards and other peripherals, the changing landscape, form
factors and capabilities of the devices today are making business extremely tough.

For a long time, they were not only improving
our interaction with devices, but were a necessity for those looking for the best
visceral interaction with their computers, video and audio. But with the advent of accelerometers, touch
screens and headsets already packaged with the majority of devices, it seems
that this peripheral manufacturer is hanging on the periphery of the industry.

Not the place you want to be for earnings
growth.

Spotty Earnings & Cost CuttingLogitech has been reporting poor results
for the last few quarters, with the most recent being a loss of $1.24 per share
in the most recent quarter with operating expenses of $765 million, up a
whopping 43.2% year over year. Even if you exclude one-time
extraordinary items, LOGI still missed expectations, reporting EPS of $0.10
versus the Zacks Consensus for $0.34, sending shares and confidence lower.

In response to weaker sales and
earnings misses, the company has begun to divest its remote control and digital
video security categories with further plans to discontinue other
non-profitable products, such as speaker docks and console gaming peripherals,
by the end of 2013. LOGI will also lay
off 140 employees, or 5% of its workforce as part of its cost reduction plan.

Foggy FutureWhile Logitech is doing everything
it can to cut costs and innovate, it may be some time before they find their way
again. Analysts’ estimates have come
down exponentially for not only the coming quarters, but also for FY2013 and
FY2014. Zacks ESPs are negative across
the board.

As a Zacks Rank #5, Logitech is
ranked at the bottom 15% of the market in terms of performance and their Zacks
industry rank is 163 out of 265, also a strike against them.

Logitech intends to generate savings
amounting to approximately $16 to $18 million with their cost cutting
initiatives. This amount is incremental to the $80 million saving already
proposed from reducing operating costs and cost of goods sold for fiscal 2014.

But the turnaround may take a while
and it seems that insiders agree. Borel Daniel (A Director at Logitech
International SA) recently sold 150,000 shares at $6.67 per share for a total
value of $1,000,500. This is after
shares have tumbled 45% from their 52 week highs just 8 months ago.

While insider selling is not always
an indication of hard times to come, it seems that Logitech may have a long
road ahead of them. They report earnings
on April 24th.

Jared
A Levy is one of the most highly sought after traders in the world and
a former
member of three major stock exchanges. That is why you will frequently
see him
appear on Fox Business, CNBC and Bloomberg providing his timely
insights to
other investors. He has written and published two tomes, “Your
Options Handbook” and “The
Bloomberg Visual Guide to Options”. You can
discover more of his insights
and recommendations through his two portfolio recommendation services:

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